A provocative, unsponsored assessment of current and future legal, regulatory, marketplace, and cultural issues affecting telecommunications and information policy presented by Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law, Penn State University

Saturday, March 10, 2012

Several years ago when the Internet was beginning to grow, the matter of fair sharing of traffic loads arose.Because ISPs did not or could closely meter traffic as they can now, the possibly arose that some ISPs could hand off traffic to other carriers without detection and penalty.The term hot potato routing refers to the deliberate off loading of traffic onto another carrier’s network.The burdened carriers resented such “free riding” and emphasized that the hot potato routing carrier could not guarantee quality of service having handed off traffic to other carriers.

With the passage of time and the onset of real or claimed congestion, the hot potato resenting carriers have become hot potato routers themselves.Wireless carriers want to sell—make that give away—femtocells ostensibly so that subscribers can get better in-building signal penetration.This positive outcome occurs, because the carrier has had subscribers install mini-cellular radio towers on premises.But what kind of backhauling does the femtocell use?Some operate on cellular frequencies in effect retransmitting wireless signals.But others inject what would have been more wireless traffic into the Internet cloud via the wireless subscriber’s DSL or cable modem broadband connection.This is hot potato routing masquerading as signal enhancement.In reality the wireless carrier suffers less congestion and the need to cell split and install additional towers if it can offload traffic to other carriers.

Another example: Wireless carriers don’t mind—make that are happy when—subscribers substitute wi-fi minutes of use for cellular minutes of use.These very same carriers used to require equipment manufacturers to disable wi-fi access via cellular phones, so that subscribers had to use network minutes.With real or imagined congestion cellular carriers can reduce capital expenditures in more plant by offloading traffic onto another carrier’s network.

Bear in mind that such offloading often does not trigger a charge for the hot potato routing (traffic originating) carrier.While incumbent carriers, such a Verizon and AT&T, vigorously complain about free-riding VoIP operators, which find ways to inject traffic onto their networks without compensation, Verizon and AT&T do the same thing.Of course they can claim the need to do so results from the FCC’s inability to reallocate spectrum, or from unanticipated data service demand.What better way to shift the blame to the FCC or those pesky, gluttonous customers?

I appreciate that ongoing high capex harms carriers’ profits, but U.S. wireless carriers do not seem to be suffering at least in terms of Average Revenue per User (“ARPU”).These carriers have some of the highest ARPUs globally, and the elimination of unmetered and unlimited data plans promises even higher ARPUs going forward.

Skimping on capital expenditures accrues short term benefits, but it may foreclose longer term gains.If wireless carriers make the investment in 4G bandwidth and switching capacity, they can encourage subscribers to treat smartphones as the functional equivalent of wired computers.Additionally they can exploit technological and marketplace convergence that promote an IP-centric network serving an ever expanding aggregate demand for information, communications and entertainment (“ICE”) services.But the incumbent players dither: they threaten to become innovative and aggressive competitors, but back off.Cable operators realize the need to offer a wireless component in their bundle of services, but instead want to sell their spectrum to incumbent wireless carriers.Wireline incumbent carriers, such as Verizon, toy with the idea of offering video content, instead of serving as the conduit for the content managed and produced by others.But this week we hear that Verizon would rather partner with Netflix than compete.

Who wants to devote sleepless afternoons competing, investing and innovating?

Monday, March 5, 2012

Leave it to the telephone companies to come up with a way to defeat success.Rather than work to make smartphones the third screen alternative to television sets and computer monitors for video and data, 3 of the 4 national wireless carriers want to strap on a meter.Ostensively to discipline “bandwidth hogs” wireless carriers have eliminated unmetered service giving new meaning to the word unlimited and handicapping ways for smartphones to become more than a handset for telephone calls and texting.

Smartphones can provide users a Swiss Army knife array of features and services, provided the phone companies play along.At first they did considering unlimited texting and data plans a way to increase revenues.To promote use the companies offered “unlimited” “all you can eat plans” like that offered by wireline telephone companies and cable television operators.The carriers reduced churn and had a mostly content and stable consumer base who appreciated knowing their “all in” cost of service.Until recently both wireline and wireless broadband operators understood that additional downloading Internet content did not adversely affect revenues even as it rewarded curious “web surfers” who did not have to worry about the cost of additional use.

Now wireless companies have to consider solutions to congestion problems largely because of successful marketing.Consumers have embraced the wireless revolution, no doubt baited with subsidized smartphones and meterless service.While the carriers quickly blame the FCC and a spectrum shortage, they did not fully appreciate the stimulus effect of “free” handsets and unmetered service.Unwilling or unable to ramp up capacity, the carriers have switched to rationing by price.

The wireless carrier are quick to trot out impressive scholars to justify metering based on a simple rationale that most resources require metering to prevent waste and subsidies flowing from low volume users to high volume users.But if pressed these very same scholars might acknowledge that metering matters only when the risk of congestion exists: when demand for the last few kilobytes of data downloading causes the network to fail, or service to degrade.

Wireless carriers have a congestion problem in some cities.Rather than understand this as an embarrassment of riches, they consider high demand a nuisance.The carriers can remedy this nuisance with the spectrum they have already acquired, but not yet activated.As well these carriers can accrue major benefits for themselves and their subscribers by considering congestion evidence that they are making progress in achieving parity for the smartphone screen.Don’t the wireless companies want their subscribers to consider smartphones mobile computers and television receivers?

Perhaps not.This out of the box thinking would require Bellhead telephone executives to conside ra longer term future where technological convergence makes it possible for telephone companies to serve as players in all sorts of information, communications and entertainment markets.These companies see the revenues and profits they leave for others to capture and want their “fair share.”But rather than work to enhance the value proposition of their wireless conduit and thereby solidify their control over what consumers may consider a preferred medium, Bellhead management thinks only about short term problems.When wireline subscribers were “tying up” dialup lines for hours of narrowband telephone lines, the carriers did not see the solution as new and more expensive broadband services.Now these very same companies want to shake down app creators with downloading surcharges and retail broadband subscribers with throttled service or higher fees.

History repeats with short term thinking that frustrates consumers with ticking meters and places a premium on not having to compete and innovate until the last minute. In the short term the wireless carriers will leverage scarcity to favor their own content and corporate affiliations, raising new questions about network neutrality.Verizon recently announced a wireless movie streaming service that surely will work well despite the congestion problem.Will Verizon expedite and favor its “mission critical” movie bits, leaving Netflix traffic to languish?Will Verizon offer not to debit its movie traffic from subscribers’ monthly downloading quota, even as heavy Netflix users may soon find their habit triggers new surcharges?Suddenly congestion and scarcity become vehicles for wireless carriers to tilt the competitive playing field in their favor and forestall the need to embrace change.

About Me

Rob Frieden serves as Pioneers Chair and Professor of Telecommunications and Law at Penn State University.He also provides legal, management and market forecasting consultancy services and has written four books, most recently Winning the Silicon Sweepstakes: Can the United States Compete in Global Telecommunications published by Yale University Press. Rob has written over one hundred articles in law reviews and telecommunications policy journals and has provided commentary in a variety of trade periodicals. He updates a major communications treatise: All About Cable and Broadband (Law Journal Press).

Rob has held senior policy making positions in international telecommunications at the United States Federal Communications Commission and the National Telecommunications and Information Administration.In the private sector, he practiced law in Washington, D.C., and served as Assistant General Counsel at PTAT System, Inc. where he handled corporate, transactional and regulatory issues for the nation's first private undersea fiber optic cable company. Professor Frieden holds a B.A., with distinction, from the University of Pennsylvania (1977) and a J.D. from the University of Virginia (1980).